Overnight Sentiment: Gold Rout Halted For Now

Yes, there was economic news overnight, such as a Eurozone and UK CPI, both of which came in line with expectations (1.7% and 0.4% respectively), and a German ZEW which confirmed Europe's accelerating deterioration, tumbling from 48.5 to 36.3, far below expectations of a 41.0 print (somehow the huge miss has managed to push the EURUSD up by 60 pips to an overnight high of 1.31 but this is merely the pre-US open manipulation to ramp US equities higher), just as there was news that Angela Merkel's support for a Cyprus bailout is growing (was there an alternative?), and that as part of their ongoing investigation into Italy's repeatedly insolvent Monte Paschi, investigators had seized €1.8 billion worth of assets from Nomura Holdings, and that Spain as usual sold more Bills than expected, driven by oversize Japanese and Pension Fund purchases, but what everyone has been looking for is whether the relentless and record rout in gold is over. For now, it appears that is the case, with gold printing an overnight low of just over $1320 and ramping higher ever since, up 3% so far and rising.

Amusingly, Goldman was stopped out on yet another trade overnight, this time its Commodity Carry Basket which hit the firm's -6% stop loss signal, and yet even with gold crossing Goldman's target, the firm has so far refused to close out its position:

Although gold has now traded below the $1,450/toz target embedded in our short recommendation, we are maintaining our short as we argued last week that prices could decline more than we initially thought as positioning is stretched and the momentum is to the downside. The most recent ETF holdings showed acceleration in the liquidation of length, which points to a broad-based sell-off extending beyond the futures markets with potentially more room to go. As a result, we are now lowering the stop to $1,400/toz (which locks in a potential gain of 12%) while we wait for evidence of a bottom, though we are not changing our price forecasts now.

Looks like Goldman has much more gold to buy from its muppets, who continue being routed on the firm's various other trading recos with realized losses.

Below are some other fresh overnight view on gold:

Credit Suisse:

The price is now not far from the level CS’s technical analysts identify as the next key area of support: $1,310

Next key level is $1,156, then $1,122; Beyond that, $1,000

HSBC:

Factors affecting the metal: April 10th FOMC minutes showed some members favor an early end to QE, a shift out of commodities into equities and bonds, ongoing gold ETF liquidation and reduction in net longs on the Comex

Price break of $1,525/oz followed by $1,500/oz at the end of last week were important technical support and psychological levels

Of the top 20, 17 of the biggest drops occurred during the 1970s and 1980s; this daily drop is the biggest for 20 years with the next biggest occurring in Oct. 2008 at the height of the financial crisis

Expects “slow grind” higher

Liberum:

Gold is the key sentiment setter among commodities; price moves appear to be the result of a concerted short sale by funds trading futures

Seems to have been a series of drivers behind collapse; key has been the potential for an end to QE in U.S.

Will be a while before there can be a strong rally; would require a big policy mistake from a major central bank to reignite anti-dollar sentiment

Coutts:

Although risks still skewed to downside, an attractive entry opportunity is unfolding, especially if gold consolidates around next technical support level near $1,250/oz

Recent selloff is an exaggeration; sales of ETFs have unwound almost all of the eurozone crisis buying seen in 2012

Numis:

Longer term fundamentals remain unchanged

Gold likely to bounce in 2H and move slowly upward as inevitable further monetary easing comes to play

JPMorgan:

Collapse represents “an extreme capitulation”

Investment case remains fundamentally unchanged

Finally, both the bank of Sri Lanka, and the Azeri oil fund thanked whoever was selling the paper gold, saying the drop represents a buying opportunity and both would continue to capitalize on the cheap physical prices.

Looking at the day ahead, in terms of perfectly irrelevant fundamentals which no longer move any risk assets, we have housing starts, permits, industrial production and CPI. Large caps including Cocacola, Goldman Sachs and Johnson & Johnson
will be reporting earnings before the opening bell, followed by Yahoo
and Intel who report after the US market closes.

Key macro observations from SocGen:

Markets retain full confidence in central banks to soothe the path to economic recovery, but this did not halt the correction across risk assets from deepening yesterday on a variety of factors which brought commodties crashing down to earth. Is China’s growth slowdown turning into a bigger scare for global demand?

The Fed is still moving towards an exit strategy, but the timescales remain highly uncertain. The latest US economic indicators have disappointed, holding back any sense of urgency to start tapering bond purchases. Today’s housing market and industrial production data are expected to point in the same direction.

The BoJ is on the offensive and the question is how much further the JPY will fall. SG strategists cut their 1y USD/JPY projection from 103 to 110. Sudden moves in both the USD/JPY and EUR/JPY since the 4 April meeting prompted a pause at the beginning of the week. This was also fuelled by lower-than-expected Q1 2013 Chinese GDP. Nevertheless, the downward trend in the JPY is clearly under way and a positive outcome for US housing construction and production data today should put USD/JPY back on track for a test of 100.00. The ECB is also accommodative and further policy easing has not be ruled out: a weak German ZEW index today will boost expectations of central bank stimulus. Draghi will testify to the EP today. The BoE may well be the G4 central bank with the toughest policy challenge as CPI continues to deviate from the target, growth is lackkustre and credit demand weak. Another increase in CPI is on the cards today.

Overall, G4 central banks remain very prudent, leaving the markets overflowing with liquidity, which will underpin the search for yield in the short term. Any easing in US yields, weakening in the AUD, downturn in the USD/JPY or upturn in the EUR/USD will offer opportunities to position on medium-term directional coverage strategies on long US rates, an upturn in the USD/JPY or a downturn in the EUR/USD.

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The full overnight summary from Deutsche's Jim Reid:

Markets were already having a difficult day prior to the Boston explosions with Gold in crash territory (more below). The S&P 500 was already down 1.4% prior to the explosions but closed -2.3% as the magnitude of the events became clear. The big move of the day was the one that saw the Gold market crash as it fell 9.1% to $1348/oz. This is the 5th largest daily fall since the US suspended the convertibility of the Dollar into Gold in 1971, the point which heralded the move from a Gold based global monetary system to a Fiat based one. It was also the largest single daily fall since the 28th of February 1983.

Over the last two sessions, gold has fallen 13.7% which also makes it also the 5th largest two-day fall since Bloomberg records began in 1920. So what’s been behind the price move in gold? There has been a lot of talk that the technicals had been skewed in the lead-up to last Friday. Newswires suggest that a number of large gold investors have been forced to unwind following the triggering of stops in the $1400-1500/oz range and that several brokers who were caught long have been forced sellers in the last couple of sessions. The WSJ reported that more than $1bn flowed out of physical gold ETF, SPDR Gold Trust, on Friday marking the third-largest outflow on record since the fund’s inception in 2004. The SPDR Gold Trust shed nearly 4% or $2.3bn of its assets last week, ending Friday with roughly $57 billion. Trading volume in the SPDR Gold Trust on Monday was running more than 7x the average and was the heaviest on record, topping the previous high set in December 2009. On the macro side, there has been talk of lower Chinese retail demand amid the recent slowdown in domestic growth and the more benign inflation trends seen recently in China. Last week’s report that Cyprus may sell part of its gold reseves to raise an estimated EUR400m for its bailout has also fuelled suggestions that other indebted countries may follow suit. Our commodity strategists write that fundamentally the economic indicators are disappointing in the US and the Fed is cooling on its QE stance – reducing demand for the gold as a hedge. They also note that with marginal industry costs for the gold mining industry at around the USD1,300/oz - the market could see some support around that level if this situation worsens.

Over the past few weeks, gold has also failed to rally despite the events in Cyprus in late March and the BoJ’s announcement of a new monetary easing regime in early April. One would normally expect that the threat of a country leaving the Eurozone, deposit haircuts, capital controls and unprecedented levels of easing by a major central bank, all occurring within a short span of time, would be enough to send gold higher. The fact that it hasn’t was probably disappointing to those who had held gold to hedge against those risks, and suggests that the marginal buyer of gold was already fully exposed. In other news, Citigroup's better than expected earnings ($1.29 vs $1.17 expected) yesterday failed to offset the negative sentiment during the US session. The bank reported sluggish net interest margins and loan demand, echoing similar statements from JPMorgan and Wells Fargo last week in what may be the beginning of a recurring theme for US banks this reporting season. Despite the negatives, Citigroup (+0.2%) was only one of seven S&P500 stocks to finish higher yesterday.

Turning to overnight markets, commodities are having a mixed session with Brent (-1%) continuing to trade weaker but gold (+1.1%) and copper (+0.3%) paring some of the recent losses. The USDJPY and AUDUSD have stabilised at 97.55 and 1.036 respectively following sharp corrections yesterday. In terms of equities, most Asian bourses are around half a percent lower with oil, gas and mining sectors stocks leading the declines. The KOSPI (+0.1%) is outperforming despite a warning from the North Korean military to South Korea that a strike “will start without any notice”. The South Korean government unveiled a 17.3trillion supplementary budget to support exporters who have been pressured by a weaker yen and this is boosting sentiment. Staying in the region, overnight Moody’s affirmed China’s rating of Aa3 but changed its outlook from positive to stable. The rating agency wrote that progress in increasing the transparency of local government debt and reducing credit growth were less than anticipated. The move comes one day after China reported its fourth consecutive quarter of sub-8% GDP growth – the first time this has occurred in two decades, according to Bloomberg data.

We have a busy day ahead with the immediate focus likely to be on the fallout from the tragic events in Boston. On the data front, we have the Italian trade report, Eurozone and UK CPI and the German ZEW survey in Europe. Mario Draghi will be presenting the ECB’s annual report to the European Parliament at 2pm London time. In the US, the data highlights include housing starts, permits, industrial production and CPI. A number of large caps including Cocacola, Goldman Sachs and Johnson & Johnson will be reporting earnings before the opening bell, followed by Yahoo and Intel who report after the US market closes. The IMF publishes its World Economic Outlook and Fiscal Monitor report today, and the Fed’s Janet Yellen will chair a monetary policy panel at the IMF’s Macro Policy conference. The BoE’s Mervyn King will also be participating in the discussion.

An old lady was in front of me at the shop. I was there to pick up may yesterdays purchase. From her crappy looking purse she took out 150K euro and some change and basically cleaned the shop dry. As of this morning no deliveries are possible till April 30th. I've been trying to get a hold of some silver at these prices, but ain't noone selling for less than spot +20% right now.

If Andy Maguire is right that there has been rejection of delivery requests by bullion bank(s) on the LBMA, then there is a high potential of a further physical squeeze on the fractional gold LBMA positions.

Spreads look relatively stable here in Switzerland compared to the last few months, and there is supply available, but the fact that Crapmex is down to generic kilo bars implies the strong hands are busy on the other side of the pond.

First off the plan is to find out what happened in Boston. This seems very similar to the Times Square attempt so clearly "there is an enemy among us." in World War Two and Vietnam we let our freedoms do the talking so we didn't have these "fear problems" (mass hysteria/paranoia a seeming abscence of law) that we do today. Having said that if we are to look at this in strictly financial terms (and no I'm not crying over my Treasury bet...yes many other things...but no not the loss of my country) then clearly "Boston" as it is now called means further aggregation of wealth into banks and (what's left of it at least) Wall Street.

to unlock that value it must be used and widely accepted as tender or trade.

case in point-last fall i offered a 20 oz tube of eagles for a colt woodsman target (about the same value) and have offered to sellers on gunbroker(several times) trades plus or less fiat and the same response-NOT interested. so until we don't have to get ass raped by dealers, this just another trade for someone elses baggage because in the time of need(ACCEPTED FORM OF PAYMENT), nobody wanted my silver for equivalent value. and will that change? well that seems to be the theme for holding pm. but when that happens, something tells me we got much greater problems. do i want your pm for my bread - sorry but id be more interested in that warm coat you have...

Which is precisely what I did. My new "assets" are a 10 acre farm, off the grid with solar panels, heat home AND water with both wood and solar, shoot and grow my own food, invested in a bunch of truck farming equipment. I NEVER guessed how effective solar panels were, nor how inexpensive they were compared to the cost of electricity...they paid for themselves in just under 12 months. I do have to hang my cloths to dry as I didn't size the system large enough to run and electric dryer.I have strung many months together with a total income of under 50 dollars...thats where my silver went, and don't have enough dry powder to take advantage of this dip, but I am finding folks who can.

Last night I was checking prices and saw the 1320 price and decided to follow my gut instincts and buy 25 ounces. Make a long story short I somehow bought 50 ounces. Well I wake up today and look at that, I may have actually caught the falling knife. I have to send bank wire today. Question is . This is most all my fiat money I have left. Was not planning to use it all last night , what would you all do ???? as I'm currently up $70 but of course that can disappear quickly.

So if the bullion banks can't deliver, and holders wont accept fiat (especially at a slammed price of gold)...what they going to do?

They could go buy it and eventually push the price to highest levels yet, probably bankrupting themselves in the process. Borrow it from the USA (if it has any)...or declare force majeur and say bad like, thanks for all the fish and fail....but I doubt fail is any option for them, TBTF.

So if the US has it will it give away all its gold to keep the bullion banks from crashing?

Well the stupid thing is if the Cartel and Fed did not play with Gold and Silver prices probably nobody would be looking at securing the actual physical or cashing it in. Maybe these guys unable to stay away from corrupting everything they touch have just ruined themselves by playing games with bullion markets.

sell both short! that was Goldman's advice, cant do better that that! As of today, they see it under 1400, of course, you are running your own risk and Yes, GS will take the other side of the trade if need be to provide liquidity....one for the team so to speak. But .... all is well!

Well the message from the TPTB is that if you buy gold and/or silver we will from time to time give you a damn good thrashing. The only way to play this is by making sure you keep a percentage of your portfolio in PMs and always cash at hand for opportunities like these.

The Internet has also made it possible for truth seekers to understand the complex policy of financial repression that explains the current historically low negative real interest rates, restrictions that appear to benefit government and banks at the expense of pensioners and savers and the desperate need to shake people out of gold and savings and into the stock markets. Financial repression is a policy that explains the "why" of this mystery. A thorough investigation of financial repression can be gleaned from such documents as the NBER working paper, The Liquidation of Government Debt by Carmen M. Reinhart and M. Belen Sbrancia or the exhaustive work of financial analyst Gordon T. Long.

Through such investigation we will find that, just as Cyprus revealed bank depositors are viewed as "unsecured creditors" by the central banks, financial repression teaches us that pensioners and savers are viewed as a direct source of funding for government debt and are the victims rather than the beneficiaries of such government policies. The global fiat- or debt-based model that has existed since President Nixon removed the U.S. dollar's final international peg with gold in 1971 is in many ways the polar opposite to the value-based model that exists when a currency is pegged in some way to gold. Although most pensioners were brought up to believe that debt is bad, that saving and living within one's means is virtuous, in the bizarre world of fiat debt-based finance, the opposite is true.

Mounting debts are becoming unsustainable at government, business and personal levels, and must be addressed. Yet the fiat reality has spoiled Western investors, and direct taxation and austerity measures are a Western politician's guarantee of removal from public office. Therefore, indirect taxation, rules that make assumption of government debt through mandatory Treasury purchases by large funds, and debt reduction through currency debasement are the preferred option for reducing debt. All of these policies rob taxpayers and punish savers.

Precious metals are the one asset class that still remains beyond the control of central bankers and government policy makers. Precious metals are limited in supply and, although the paper market has demonstrated its ability to temporarily affect the price of gold and silver, it cannot change the fundamentals. Precious metals paper instruments such as ETF shares, mining shares and futures and options sustained even more damage during this longest correction in gold since 2000. Those who continue to own bullion to which they hold title are unaffected. Their holdings still retain purchasing power even while government policies decimate the purchasing power of paper currencies. An ounce of gold will still buy approximately the same number of loaves of bread as it would have in Biblical times.

There is another unexpected consequence of currency debasement that might also be responsible for this desperate campaign against gold. Japan's decision to win the "race to debase" has resulted in unprecedented Japanese gold buying as the yen weakens against the yellow metal. As several commentators have noticed, the gold war has become a battle of titans as vast amounts of Eastern capital challenges Western capital for the limited supply of physical gold.

Another clue is provided by the spate of new China-centric trade alliances that seek to circumvent the U.S. dollar. Brazil, Russia, India, China, South Africa and now Australia are all moving towards multi-billion dollar trade agreements that will bypass the use of the U.S. dollar completely. This is a significant threat to the U.S. dollar's global hegemony and a direct threat to the policy of financial repression, as this alone could force interest rates higher. By one account a single-point move in official inflation could add a trillion dollars to the outstanding U.S. debt because of indexed pensions and other unfunded government liabilities. This is another reason gold, the only true threat to paper currencies, and a much clearer indication of true inflation than doctored government CPI figures, must be discredited through price depreciation.

Financial repression is all about control of information. The well-timed, coordinated torrent of gold-negative reports such as those from Goldman Sachs and Societe Generale's The end of the gold era, each warning investors to flee the gold market, were highly suspicious examples of their cozy relationship with the central banks.